As a contractor who is a sole proprietor, you will not pay corporate taxes. You will pay income taxes on any earnings from your contracting business, but you can write off many expenses. You must show that these expenses are a direct result of performing your job and report them on Internal Revenue Service Schedule C.

Tools and Equipment

All expenses for tools and equipment you use are tax deductible, which includes not only new purchases but also depreciation on existing tools and equipment. Your vehicle is included if you use it solely for your business. Otherwise, keep a mileage log in your car or truck for times you drive to a work site. The IRS allows you 51 cents a mile for business mileage (for tax year 2011).

Employees and Subcontractors

Any wages or subcontractor fees you pay are tax deductible. Keep records of all wages and salaries; these come off the gross income to determine your taxable income. Do not include any wages to yourself because you are treated as a business owner who gets profits instead of wages.

Health Insurance and Medical Costs

Your health insurance premiums are deductible as are premiums for your dependents. Any fees you had to pay for healthcare that your insurance didn't cover is also deductible, which can include prescription drugs.

Business Start-up Costs

For any year after 2009, you can deduct up to $10,000 in business start-up costs. If you started your business in 2010 or after, write off all new purchases for your business up to the allotted amount.

Repairs and Improvements

You can deduct any expenses associated with keeping your equipment in working order, including vehicles that are used solely for your work. Keep records of repairs, and indicate on your receipts that these were necessary to perform your job.

Telecommunications and Computers

Use a dedicated phone for your business, and you can write off the expenses associated with it. If the phone is for personal use as well, do not write it off. Computers follow the same guidelines. Use a computer solely for your business, and you can write it off.

About the Author

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.